TY  - JOUR
AU  - Mishkin,Frederic S.
TI  - Is Monetary Policy Effective During Financial Crises?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14678
PY  - 2009
Y2  - January 2009
UR  - http://www.nber.org/papers/w14678
L1  - http://www.nber.org/papers/w14678.pdf
N1  - Author contact info:
Frederic S. Mishkin
Columbia University
Graduate School of Business
Uris Hall 817
3022 Broadway
New York, NY 10027
Tel: 212-854-3488
Fax: 212/662-8474
E-Mail: fsm3@columbia.edu
AB  - This short paper argues that the view that monetary policy is ineffective during financial crises is not only wrong, but may promote policy inaction in the face of a severe contractionary shock.  To the contrary, monetary policy is more potent during financial crises because aggressive monetary policy easing can make adverse feedback loops less likely.  The fact that monetary policy is more potent than during normal times provides a rationale for a risk-management approach to counter the contractionary effects from financial crises, in which monetary policy is far less inertial than would otherwise be typical  -- not only by moving decisively through conventional or nonconventional means to reduce downside risks from the financial disruption, but also in being prepared to quickly take back some of that insurance in response to a recovery in financial markets or an upward shift in inflation risks.
ER  -